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Canaccord Genuity Recaps PIMCO

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Plus, a look at Apple and Toll Brothers.

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The following are excerpts from Canaccord Genuity's Morning Coffee, a compendium of news on market-moving equities.

PIMCO Bill Gross' Monthly Outlook: Dollar bill.

In his most recent "Investment Outlook," PIMCO's [owned by Allianz (PINK:AZSEY) Bill Gross outlines the four big structural issues that could cause problems for the economy going forward. In his words:

1) Debt/Delevering. Developed global economies have too much debt – pure and simple – and as we attempt to resolve the dilemma, the resultant austerity should lower real growth for years to come. It is clear that financial institutions and households face similar growth headwinds. The former needs to raise equity via retained earnings and the latter to increase savings in order to stabilize family balance sheets;

2) Globalization. The fall of the Iron Curtain in the late 1980s and the emergence of capitalistic China at nearly the same time was a locomotive of significant proportions. Adding 2 billion consumers to the menu made for a prosperous restaurant, increasing profits, and growth in developed economies despite the negative internal effects on employment and wages. Now, however, these tailwinds are diminishing, producing an airspeed which inexorably slows relative to the standards of prior decades;

3) Technology. In the past decade, machines and robotics have rather silently replaced humans, as the US and other advanced economies have sought to counter the influence of cheap Asian labor. Almost a century ago, Keynes alerted the economic community to a "new disease," what he called "technological unemployment" where jobs couldn't be replaced as fast as they were being destroyed by automation. A structurally higher unemployment rate of 7% or more is the feared "whisper" number in Fed circles. Technology may be leading to slower, not faster economic growth despite its productive benefits; and

4) Demographics. Numerous studies and common sense logic point to the inevitable conclusion that when an economic society exceeds a certain average "age" then demand slows. Typically the dynamic cohort of an economy is its 20- to 55-year-old age group. Now, however, almost all developed economies, including the US, are gradually aging and witnessing a larger and larger percentage of their adult population move past the critical 55-year-old mark. This means several things for economic growth: First of all from the supply side, it means productivity and employment growth rates will slow. From the demand side, it suggests a greater emphasis on savings and reduced consumption. Those approaching their seventh decade need fewer cars and new homes. Almost none of them have babies (thank goodness!). Such low birth rates and a significant reduction in demand have imperiled Japan for several lost decades now. A similar experience will likely turn many developed economy "boomers" into "busters" within the next several years.
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No positions in stocks mentioned.
Canaccord Financial and its affiliated companies may have a Corporate Finance or other relationship with the companies mentioned and may trade in any of the Designated  Investments mentioned herein either for their own account or the accounts of their customers, in good faith and in the normal course of market making. The authors have not received, and will not receive, compensation that is directly based upon or linked to one or more specific Corporate Finance activities, or to coverage herein.
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